Pet Economy: A Trillion-Yuan Business Built on Loneliness

Editor’s Note: This article is republished from Qingtong Capital, authored by Qingtong Capital. VCBeat has republished it with authorization.

“Cat petting” and “dog sniffing” have become a trend in the past two years, with the pet-owning population expanding rapidly and the pet economy continuing to grow. Some argue that the pet industry, valued at hundreds of billions of yuan, is poised for a major boom. So, what was the status of China’s pet market development in 2018, and what changes were emerging?

The pet industry is also a key focus area for Qingtong Capital. By analyzing the current state of China’s domestic pet market, we have identified five emerging trends in the booming “pet economy,” hoping to provide readers with food for thought and inspiration.

China’s pet market was established in 1994. After 25 years of development, and with the diversification of leisure activities and emotional outlets, pet ownership has become a popular pastime for many households.

Since the emergence of China’s pet industry, the market has experienced growth, yet its scale has remained relatively modest. Following the relaxation of dog-ownership regulations in 2012, the pet industry received a significant boost, leading to markedly accelerated market growth. According to the “2018 White Paper on China’s Pet Industry,” the current size of China’s pet market has reached RMB 170.8 billion, representing an nearly five-fold expansion compared with 2012. The pet economy is gaining considerable momentum, with the industry’s scale continuing to expand and mature.

In 2018, the number of pets in China exceeded 168 million, with cats and dogs being the predominant species. Data from the China Commercial Industry Research Institute shows that dogs accounted for 34% and cats for 20% of the pet population; together, they comprised more than half of all pets, indicating a strong preference for cats and dogs among Chinese pet owners. Consequently, the majority of food products and services on the market are tailored to “feline friends” and “canine companions.” The numbers of other small pets follow in descending order: fish, hamsters, turtles, and rabbits, reflecting a diversification in pet types.

The pet economy is gaining momentum, driving increased demand for products and services in the pet industry. Qingtong Capital’s observations reveal that the pet industry value chain primarily encompasses seven niche segments across its upstream and downstream sectors. Upstream products include pet trading, pet food, and pet supplies, while downstream services mainly cover veterinary care, pet grooming, pet training, and pet insurance.

Food and healthcare have long been hot sectors in the pet industry, yet foreign products dominate the market share. As a rigid demand, pet food accounts for the largest proportion of the industry at 33.8%, followed by pet healthcare at 22.9%.

In the pet food sector, Mars alone accounts for a staggering 76.4% of the market share according to Euromonitor data, highlighting the significant lack of competitiveness among domestic brands. In the veterinary healthcare field, while domestic pet hospitals are expanding rapidly, there is a heavy reliance on foreign medical products, with imported goods such as pet vaccines, veterinary drugs, and diagnostic tools commanding nearly 90% of the market.

A Review of the Current State of China’s Pet Economy in 2018: Observing Five Emerging Trends Across Consumer Demographics, Supply Chain Segments, and Pet Categories—How Will These Shifts Reshape the Industry Landscape?

For a long time, the market has generally believed that the development of the pet industry is closely related to population aging. In fact, this is indeed the case in European and American countries. In the United States, which has the most developed pet market, population aging and continuous income growth are the main factors driving the prosperity of the pet market, with individuals aged 45 and above accounting for nearly 50% of pet owners.

However, in China, young people are the primary driving force behind pet consumption. In terms of age, data from Goumin.com shows that in 2018, individuals born in the 1980s and 1990s accounted for 77% of the pet consumer base, making them the main demographic of pet owners. Regarding gender, women dominate spending absolutely; among mainstream dog and cat owners, 88% are female.

We also observed an interesting phenomenon: users born in the 1990s rapidly emerged as the primary drivers of pet-related consumption in 2017, with this trend continuing to grow. In 2016, pet owners born in the 1980s constituted the largest group, accounting for 48%, while those born in the 1990s represented only 17%. By 2018, the proportion of pet owners born in the 1990s had climbed steadily to 43%, making them the predominant demographic among pet keepers.

The pet economy is a “loneliness business” for young people, and the increasingly younger consumer demographic is indeed driving the prosperity of the pet industry. First, spending on pets has increased. In the minds of young people, pets are primarily regarded as “family members,” and consumers are willing to pay for pet-related expenses. In 2018, per capita annual spending per pet in China reached RMB 5,016, a 15.3% increase from 2017, with 80% of this expenditure contributed by individuals born in the 1980s and 1990s.

Secondly, young people are more receptive to new things. In addition to staple pet food, they are also willing to try services such as grooming, photography, boarding, insurance, and training, which has driven the development of the downstream service market in the pet industry chain.

In addition, we have observed that “shared pets” and “pet influencers” are also gaining popularity among young people, with new economic models continuously emerging.

While many claim they are “downgrading their consumption,” we have found that pets are not only “eating better” but also benefiting from the rise of a dedicated “service sector,” with the industry clearly showing an upward trend.

The assertion that the pet industry is undergoing consumption upgrading is supported by two key observations: on one hand, the sales growth of mid-to-high-end pet food has far outpaced that of the low-end market. According to the "2018 Pet Consumption Trends Report," mid-to-high-end pet food for dogs and cats (priced at 40–50 RMB per jin) recorded the highest year-on-year growth rates, reaching 100.69% and 136.54%, respectively—twice the growth rate of low-end products. This indicates that consumers are increasingly willing to purchase high-quality, branded food for their beloved pets.

On the other hand, pet-related services in downstream industries—such as insurance, grooming, training, photography, boarding, and funeral services—are on the rise. In these emerging pet service markets, individuals aged 25 to 35 account for nearly 70%, reflecting young people’s greater openness to new offerings and their willingness to spend on services.

Data shows that consumption in the pet services industry grew by 82% in the first half of 2018 compared to the second half of 2017, indicating very strong momentum. In terms of specific segments, pet insurance has emerged as a new hotspot, with numerous insurance products continually entering the market. Meanwhile, services such as pet grooming, training, and boarding are currently dominated primarily by individual family-run businesses, characterized by low chain affiliation rates and limited service standardization. Pet funeral services are described as the “most lucrative” segment, as most domestic consumers lack awareness of such services; the customer base consists largely of middle- to high-income groups, and competition within the industry remains minimal.

Pet food is categorized into staple foods and treats. Staple foods have consistently remained the core of pet product consumption, with foreign brands holding more than half of the market share. We have observed that since 2015, the market share of pet staple foods has gradually declined by 7.84%, whereas the treat market has grown by 3.79%, accounting for 21.8% of total pet market consumption.

As overseas brands have made limited inroads into the pet treat segment, resulting in insufficient competition, treats have become a key breakthrough area for domestic companies. New industry players are accelerating their market entry, adopting differentiated competitive strategies to avoid head-to-head competition in the staple pet food sector. Qingtong Capital has compiled a list of major domestic pet food companies. We found that, in addition to listed enterprises such as Peidi and China Pet Foods, six other companies in the industry secured financing in 2018, indicating growing attention and recognition from the capital market for local brands.

Another reason is that pet treat products are not standardized and cannot be produced with the same high degree of mechanization as staple pet foods. Many stages in treat production still require manual craftsmanship, with labor costs accounting for 30% of total expenses. China’s relatively low labor costs have become an advantage for the development of its pet treat industry.

Beyond cats and dogs, which account for more than half of the pet population, a wider variety of pets are entering households. Data show that in 2017, pet fish accounted for 16% of pets in China, hamsters 10%, turtles 9%, and rabbits 7%, reflecting increasing diversification in pet types.

Sales of these “niche” pet products have also shown a significant upward trend. According to data from the 2018 Pet Consumption Trends Report, sales revenue for bird and insect supplies increased by 179% year-on-year, while supplies for hamsters, reptiles, and rabbits saw growth of approximately 90%.

The diversification of pet types has objectively created opportunities for new market entrants. Qingtong Capital has found that mainstream pet food, pharmaceuticals, supplies, and services are currently targeted primarily at cats and dogs. Products and services catering to niche small pets face relatively less competition and hold significant market potential.

Pet insurance emerged as a hotspot in the emerging pet services industry in 2018, attracting not only capital attention but also an increasing number of entrepreneurial entrants. Qingtong Capital has reviewed the insurance products available on the market and found that pet insurance mainly falls into two categories: medical insurance and liability insurance. Among these, medical insurance is the most predominant product and the primary focus of insurance companies, with annual premiums averaging around RMB 500–1,000 and coverage amounts ranging from RMB 5,000 to RMB 20,000.

By comparing the development trajectory of overseas pet insurance markets, it is evident that China’s pet insurance industry holds significant growth potential as the domestic pet market matures and consumer awareness of insurance increases. In Sweden, which issued the world’s first pet insurance policies, over 30% of pets are insured, with a market size reaching RMB 2.4 billion. According to the “2018 White Paper on China’s Pet Industry,” only 5% and 8% of users had purchased insurance for their pet cats and dogs, respectively, indicating a markedly low insurance penetration rate.

China’s pet insurance market is still in its early stages, and consumer habits have yet to be fully established. A survey on willingness to purchase pet insurance revealed that 60% of consumers remain on the sidelines. In terms of coverage types, over 80% of consumers expressed willingness to purchase medical insurance for their pets, indicating significant growth potential in the pet health insurance market.

As these changes unfold in the pet industry, how is the capital market responding, and how will its strategic investments, in turn, shape the development of the pet market?

Qingtong Capital has compiled 32 financing events in the pet industry that occurred in 2018. We found that capital is no longer overly focused on the pet healthcare and food sectors, as seen in the early stages; instead, emerging segments such as pet services and pet supplies are also attracting investment attention. Among these, pet supplies accounted for the highest proportion of financing deals at 28%, while pet services represented 21.9%, reflecting investors’ recognition of the emerging pet services market.

From the perspective of funding rounds, we found that in 2018, the pet industry saw the highest number of financing events at the angel and Series A stages, with 11 and 12 deals respectively. This indicates that investment was primarily concentrated in the early stages, reflecting capital’s optimism about the prospects of domestic brands.

Currently, China ranks third globally in pet ownership volume; however, the proportion of households owning pets stands at only 6%, significantly lower than the market penetration rates exceeding 30% observed in countries such as the United States, Germany, and Japan. As China’s pet industry matures, both household pet ownership rates and pet populations are expected to continue rising, thereby driving sustained growth in pet-related demand. Furthermore, the emotional needs arising from the trend of population aging may present new opportunities for the pet industry.

From the perspective of the upstream and downstream segments of the industry chain, specialization within the pet industry is a prevailing trend. As the consumer base in the pet market continues to skew younger, with post-90s generations becoming the mainstream of new pet owners, a market for emerging pet services is taking shape. In particular, young consumers show high acceptance of services such as pet insurance, grooming, and boarding, integrating these expenditures into their daily routines. Moreover, the average spending per pet is rising year by year, indicating that pet services are continuously improving and fostering new growth drivers.

In the pet food market, domestic companies’ differentiation strategies have begun to yield results in the face of intense competition from overseas brands. On one hand, they are sidestepping the fierce competition in staple foods by entering the market through pet snacks and expanding across the entire industry chain. On the other hand, they are avoiding offline supermarkets and hypermarkets where overseas brands hold significant influence, shifting instead to online e-commerce channels. By focusing on digital marketing and leveraging high-rebate channels to capture online market share, these companies are forging new pathways for growth.